Europa Cruise Line Goes Public on NASDAQ

Details

July 14, 1989

Europa Cruise Line has gone public through its parent company, Europa Cruise Corporation, and raised a total of $4.6 million. The stock, which was offered at one dollar, began trading June 22 on the NASDAQ system under the symbol KRUZ and was quoted at $1.25 at press time.

Europa Cruise Line, which operates two 275-passenger vessels on six-hour day and evening cruises, intends to use the proceeds to expand its one-day cruise operations primarily in the United States, and is presently looking at San Diego and Charleston.

According to the prospectus, Europa Cruise Line generated net income of $683,931 for the year ended December 31, 1988. The offering was underwritten by the Stuart-James Company.

Europa Cruise Line started cruise operations in December of 1987, operating the 275-passenger Europa Star from Biloxi, Mississippi. This year, the ship was first repositioned to St. Petersburg and then to Jacksonville where it will be operating from May through September of each year. From October through April, that vessel will be operating from Treasure Island. All are Florida ports.

Local regulatory problems forced the company to move the Europa Star from Biloxi where new interpretation of charts would have forced the line to operate eight-hour cruises in order to offer casino gambling, which would have been uneconomical.

A second vessel, the 275-passenger Europa Sun entered service from Pensacola in April of 1988, but has been sailing out of St. Petersburg since last October.

The two vessels are operated under charter agreement with Mihm Transportation III, Inc., which expires on September 30, 1993, at which time the line has the option to purchase the vessels for $1.

Under the agreement, Europa Cruise Line's obligation to Mihm is $3,904,084 with monthly charter payments of $70,000.

Europa Cruise Line provides the deck and engine crew, captain and personnel for each vessel and pays all costs of operation, certain maintenance costs and the costs relating to marine and hull risk insurance, protection and indemnity insurance and crew insurance.

Financial Record

According to the prospectus, Europa Cruise Line funded its cash and capital requirements through a combination of bank debt, stockholder debt and revenues generated from cruise operations.

In its first year of operations, from May 27, 1987 to December 31, 1987, the prospectus stated that the company posted a loss of $443,636 compared to net income of $683,913 for its second year.

Total assets are listed as $7,533,805 and total liabilities as $3,920,305.

The first quarter of 1989 showed cruise revenues of $1,819,132 compared to $1,178,022 for the first quarter of last year. Passengers fares were $967,000; net gaming concession revenue $667,578; beverage income $147,377; and "other" $37,067.

Net income was $156,223 in the first quarter compared to $204,316 for the same period last year. The prospectus stated that the operating income for the quarter was adversely affected by the removal of the Europa Sun from service for repairs and inspection and expenses incurred in the relocation of the Europa Star to Treasure Island.

The line's casinos are operated by Atlantic Associates, with net gaming income allocated 60 percent to the line and 40 percent to Atlantic.

The line operates its own food and beverage services and meals are prepared and served onboard in two seatings.

Since commencement of cruise operations, the line has carried more than 125,000 passengers.

Net Proceeds

Net proceeds to the company from the offering of 4,600,00 shares is $3,267,000, portions of which will be used to repay $210,000 of indebtedness to the law firm of which the Chairman of the Board of Directors, Chief Executive Officer and principal stockholder, Charles S. Liberis, 47, is a principal, and bank indebtedness of $128,900.

An estimated $435,000 may be used to remodel the line's existing two ships, which were originally built in 1977 and renovated in 1987 for use as passenger ferries in the New York metropolitan area. The balance of the net proceeds, $2,343,100, will be available for the implentation of the company's expansion plans.

Europa Cruise Line has two principal shareholders, Liberis, who is one of the founders, holds 53 percent of the outstanding stock, and Leonard S. Krick, 40, who is is also one of the founders and Senior Vice President, holds five percent.

There are 9,580,000 shares of common stock outstanding.

Risk Factors

The prospectus identified all the traditional cruise industry risk factors, including its high fixed costs and its dependence on passenger revenues to meet expenses. The company is chartering the two vessels and charter payments, fuel and wages are fixed costs, which are incurred regardless of passenger loads.

Also identified were a number of competitors, including other short-term cruise operators, Sea Escape, Southern Elegance and Fernandina Cruise Lines, which could increase competition by repositioning vessels to the areas where Europa Cruise Line operates.

A bill is also being considered by the Florida Senate that would prohibit a vessel with gambling equipment from operating in the territorial waters of Florida unless the vessel also engaged in transportation from the U.S. to a foreign country at least every 30 days. However, a similar bill was rejected by the Committee of the Florida House of Representatives.

Expansion Factors

The criteria employed by the company for expansion to new ports include suitable population base; presence of the port in an established vacation market; suitable dock facilities and water depths; availability of customs clearance; ability to comply with local laws; favorable weather and sea conditions; close proximity to international waters; and competition.

Marketing

Europa Cruise Line focuses its sales and marketing efforts within a 100 miles radius of its embarkation ports. The line's strategy as stated in the prospectus is to market the cruise experience itself as an additional attraction in established vacation markets near its ports. The cruises are marketed as a family recreation experience emphasizing the wide variety of shipboard activities and entertainment for adults and children.

Marketing activities include local advertising, direct mail, and a monthly newsletter which is sent to repeat passengers.

The line periodically revises its food menu and entertainment offered and offers special theme cruises and other promotions co-sponsored by local business, in order to vary the cruise experience and attract repeat passengers.

Europa Cruise Line charges $39 per person for its day cruises and $49 for its evening cruises. The rates covers the cruise and includes meals. In addition, passengers spend another $30 to $40 on board on souvenirs, t-shirts, photos and in the ships' casinos.

The line presently employs 111 persons, including four in executive positions, 15 in sales and marketing and nine in administrative and clerical positions. The remaining are officers, crew and staff.

Peter Booth, 54, is President and Chief Operating Officer. He was most recently President of American Cruise Lines. From 1956 to 1987, Booth served in the U.S. Navy until he retired as a Rear Admiral.

Europa Cruises Corporation is a Delaware Corporation and its subsidiares are Europa Cruise Lines, a Cayman Islands company, and Europa Cruise Line, also a Delaware Corporation.

Steve Solomon, a Financial Consultant at the Stuart James Company, said that the offering had been very well received and that there were already some 20 marketmakers in the stock including Shearson Lehman Hution.